TMI Blog2022 (10) TMI 303X X X X Extracts X X X X X X X X Extracts X X X X ..... EB for 5280 units supplied by TNEB. The applicant has sold 86904 units of power to the tenants of the building through invoices. Electrical Energy is goods classified under HSN 2706 and exempted by Notification No.02/2017 CT(R) dated 28.06.2017 vide SI. No. 104. Therefore, electrical energy generated by Solar Panel installed by the applicant is exempted goods supplied to tenants and consequently input tax paid on the Solar Panels are ineligible as credit of input tax on Capital Goods used exclusively for supply of exempted supply are not eligible under Section 17(2) read with Rule 43(a) - The Maintenance Agreement provides for upfront payment of expenses by applicant to third parties for various supplies, such as electricity, water, etc and reimbursement of the same proportionately from tenants upon furnishing Bills. Therefore, payment of GST on the electricity charges and other expenses collected from the tenants needs to be examined in the light of Rule 33 dealing with value of services in case of pure agent. The applicant is not eligible for claim of Input Tax Credit, as per Section 17(2) of the CGST /TNGST Act read with Rule 43(a) of CGST / TNGST Rules 2017, on the Goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the basis on which the said EB and DG charges are charged to the tenant. The applicant has stated that they pay the Electricity charges upfront to the Tamil Nadu Electricity Board ('TNEB') for the building as a whole and also incurs the expenses of running the DG, along with any other expenses incurred by the applicant for the business and claims Input Tax Credit charged by the applicant's supplier, on the inward supplies of the applicant, if any. They have stated that due to composite nature of the supply, the outward supply made by them is a taxable supply of services, and consequently, they have charged taxes on the Electricity charges and DG charges (EB and DG charges) which is being recovered from the tenant. Rate charged on the invoice raised by the TNEB is lumpsum and different from that charged by TNEB. Therefore, they are not excludible from taxable value under Section 15 of the CGST Act 2017. Accordingly, GST is charged on the entire amount as a composite supply. 2.2 The applicant has submitted that the agreement with tenants states the following:- i. VBC Associates shall pay upfront common electricity charges and metered water charges or tanker lor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction of immovable property and for goods and services received for construction of immovable property (other than plant and machinery) on own account. They have stated that in the instant case the solar panels do not get covered under the definition of immovable property, as panels are not attached to the earth. 2.5 The applicant has stated that as per Section 2(26) of the General clause Act, 1842 immovable property shall include land, benefits to arise out of the land, and things attached to the earth, or permanently fastened to anything attached to the earth . Also, the meaning of attached to the earth is found in Section 3 of the Transfer of Property Act, 1882 where it is defined to mean (a) rooted in the earth, as in the case of trees and shrubs (b) imbedded in the earth as in the case of walls or buildings (c) attached to what is imbedded for the permanent beneficial enjoyment of that to which it is attached. They have submitted that in respect of section 17(5), the solar panels purchased by them qualify as 'plant and machinery' in the books of accounts, as a Fixed Asset, as they are apparatus, equipment, and machinery fixed to earth by foundation or stru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licant is owned by them. If so, proof for that. Whether the entire building is rented or if a portion is self- occupied, such details may be furnished along with details of floors available, agreement copy with tenants, invoices raised for tenancy. ii. If not owned, the agreement with owners for undertaking maintenance of the building at No.47 / 49, VBC Solitaire, Bazullah Road, T. Nagar, Chennai - 600017 along with whether they are permitted to install the solar panels and harvest power. iii. When the solar power generated is netted against the consumption in the given place of business, substantiate the inclusion of the charges pertaining to the units transferred to the grid and utilized thereafter. iv. Copy of agreement entered with the clients for maintenance of the building. v. Copy of agreement entered with Solar panel supplier. 3.2 With regard to details of occupancy, the AR stated that the limited question before the AAR is whether the solar panels are blocked credits under Section 17(5) (c) / (d) which requires consideration of whether they are movable and / or plant machinery. The AAR is not being sought on the taxability / non-taxability of outp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled at R.Kombai village through TANTRANSCO / TANGEDCO's transmission and distribution network to their captive user HT SC No.019094022465 at Chennai Central EDC. There exists separate Lease Deed between Owners as Lessor and Tenants as Lessee, inter alia, states that Lessors have provided adequate power supply to the building including 100% power backup through Generator. Further, Maintenance Agreement between the applicant and Tenants, inter alia, states that applicant shall pay upfront, common electricity charges supported by bills issued by Tamil Nadu Electricity Board and the Tenants shall pay / reimburse such payments to the applicant including transmission loss of electricity from the electrical room to the various floors in operation. The applicant will also facilitate the process of effective 100% power back up facility provided in the building by keeping the Generator in operative readiness condition. The diesel consumption charges shall have to be borne by the tenants proportionately based in the area of occupation. 7. The question which needs to be answered is whether the input tax credit on Solar Panels procured and installed is blocked credit under section 17(5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial buildings by providing quality services in the areas of upkeep, security, maintenance of equipment, utility services like electrical, plumbing, painting, pest control, etc., to the owners / occupants of the apartments, commercial buildings and has expressed their willingness to do the maintenance of the building at Bazullah Road on a monthly consideration basis. 8.2.2 The first party has agreed to provide the Maintenance Services to the second party as enumerated under various major categories viz 1. Soft services, 2. Engineering services, 3. Support services, 4. Service standards, 5. Maintenance charges and taxes, 6. Electricity and Water charges, 7. Power back up, 8. Statutory compliance, and 9. Internal maintenance from the date of commencement of payment of lease rent by the second party to the first party under Lease deed. The second party will pay the said maintenance charges in advance to first party from the effective date on receipt of invoices from the first party. 8.2.3 The first party will receive from second party the following amounts for the aforesaid services. The first party shall charge a monthly maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for DG energy consumption with diesel expenses incurred. 8.5.2 Invoice No. VBC/EL/21-22/110 dated 31.03.2022 issued by applicant to NFRSI, towards EB Charges for the month of March 2022 along with amount collected as GST supported by detailed workings with Energy Meter reading for EB Energy consumption with details of Units, Rate and amount separately for Energy consumption, Demand charges, Energy consumption - common area, Electricity tax and Meter Rent. Perusal of break-up of various charges in the detailed workings as Annexure to the said Invoice reveals that energy consumption of 12969 units has been reckoned on the basis of Energy meter reading and Rs. 1,03,752/- has been charged @ Rs.8/- per unit. For the month of March 2022, total building energy consumption (EB) is 92184 units and total building energy consumption (DG) is 595 units. Diesel cost for 200 liters is Rs.20,688/-, accordingly cost per unit of energy generated by DG is Rs.34.77. 8.5.3 TANGEDCO Bill No. 114022465032211 dated 07.04.2022 HT Bill for the month of March 2022 reveals that Rs.42240/- has been charged as Total Energy charges for net consumption of 5280 units @ Rs.8/- per unit. HT Bill Working Sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a comprehensive study of facts of business activity and scope of service required to be provided by the applicant under various agreements, is required to be considered so as to decide the input tax credit eligibility or otherwise. Therefore, it is not possible to confine the discussion on eligibility to claim input tax credit restricted to section 17(5) (c) and (d) of CGST Act and SGST Act, as desired by the AR. Before proceeding further, the statutory provisions of the Acts and Rules relevant to claim of Input Tax Credit are analysed as under. 9.2 Section 17 of the Act deals with provisions relating to Apportionment of credit and blocked credits. 9.2.1 The provision relevant to apportionment in case of usage for both taxable and exempted supply is given under Section 17(2) of the Act, and the same is given below for ease of reference:- (2) Where the goods or services or both we used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly .. for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of this Chapter, the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied, namely,- (i) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third party on authorisation by such recipient; (ii) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service; and (iii) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are in addition to the services he supplies on his own account. Explanation .- For the purposes of this rule, the expression pure agent means a person who- (a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both; (b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply; (c) does not use for his own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, electrical energy generated by Solar Panel installed by the applicant is exempted goods supplied to tenants and consequently input tax paid on the Solar Panels are ineligible as credit of input tax on Capital Goods used exclusively for supply of exempted supply are not eligible under Section 17(2) read with Rule 43(a). In view of the above, the question of further deliberation whether Solar Panels are covered under blocked credit as per section 17(5)(c) and (d) does not arise. 10.6 The applicant has relied on various AAR Rulings viz M/s KLF Nirmal Industries Private Limited (TN-AAR), Shri Kesav Cement and Infra Limited (KA-AAR) and M/s Kumaran Oil Mill (TN-AAR). In the said rulings, the Solar Power Panels are recognized as Plant and machinery and other facts in the said rulings does not fit into the facts of the applicant and the same is distinguished. The applicants in the cited rulings are manufacturers who have used the electrical energy generated by Solar Panels for taxable supplies or taxable and exempted supplies. However, the applicant has used the electrical energy exclusively for exempted supply, as supply of electricity to tenants is covered by Lease Deed between ..... X X X X Extracts X X X X X X X X Extracts X X X X
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